Review Of Paper “A Treasury System for Cryptocurrencies"

A brief review of the content about funding categorisations from a paper published on the IOHK website about treasury systems


In 2019, Bingsheng Zhang, Roman Oliynykov and Hamed Balogun published a paper called A Treasury System for Cryptocurrencies: Enabling Better Collaborative Intelligence.

The paper is a fantastic resource going into detail about the benefits of using a treasury system for creating sustainable blockchain ecosystems, how this treasury could function and how other existing systems and voting approaches can be considered when defining this suggested treasury system. The outcome of this paper helped to both suggest and verify a suitable theoretical approach for a treasury system. An approach that is currently being adopted by the Cardano ecosystem.

As part of defining what a good treasury system could look like the paper also covers the value of using liquid democracy through the use of delegated representatives. The integrity and security of the treasury system is also articulated and mentions the usage of zero-knowledge proofs. The theory and cryptography behind the treasury system is then also broken down.

Some high level details are provided about some of the key processes involved with the treasury system to function. Part of this included the mention of partitionary budgeting. It is this section that is relevant to the funding categorisation analysis documentation. Towards the end of the paper a pilot version of the system was created to test out and verify the suggested system that showcased some positive results.

The relevant content for funding categorisation from the paper will be reviewed and a comparison made between the papers suggested categorisations and funding categories before finishing with a short summary.

Reviewing the content relevant to funding categorisation

The content in the paper that is relevant to the topic of funding categorisation can be found in section 3.12 Partitionary budgeting. In the text below the key content has been extracted with a brief response provided.

“The main goal of treasury is decentralized community-driven self-sustainable cryptocurrency development through projects funding and adoption.”

Funding categorisations determine what incentives exist in an ecosystem and which initiatives are able to request and receive funding from the treasury. Funding categorisations are of vital importance to create and maintain a self-sustainable ecosystem. Categorisations will ensure funding is made available to a range of important initiatives such as for new projects, infrastructure, adoption, support, maintenance and many others.

“The naive approach is to select projects for funding by ranking all submitted proposals according to the number of votes they get and take a number of projects whose total budget does not exceed the treasury budget. However, there exists a risk of underfunding vital areas due to numerous project submissions and inflated discussions on some other areas. We can categorize proposals and allocate a certain amount of treasury funding for each category to independently guarantee funds to every vital area.”

An outcome from the idea categorisation analysis is that it helped to highlight the benefits of using broad categorisations. Using just one categorisation to submit all proposals would be a desirable outcome based on the results of this analysis. However as pointed out by the paper, it is not this simple to not use any categorisations. A single categorisation approach could be considered a naive approach to jump towards this solution at least in the short term. Certain areas will naturally be more popular and more highly discussed than others which can result in a lack of funding being directed to important areas. Using more than one categorisation with well defined focus areas can help to ensure that funding is guaranteed to vital areas in the ecosystem. A single categorisation in the short term would create a difficult governance decision for voters to handle. Each proposal could be vastly different from others proposals and about very different parts of the ecosystem when only using a single categorisation. The complexity of this approach, without good voting infrastructure and tools, would likely lead to increased voter paralysis due to the difficulty of deciding how to effectively vote.

“Analysis of existing blockchain development funding reveal marketing, PR, integration, software development and organisational costs are most prominent categories. We propose to include the following categories:

  • Marketing. This covers activities devoted to cryptocurrency market share growth; market analysis, advertisement, conferences, etc. The vastness of the area demands this category should take the biggest percent of the funding budget.

  • Technology adoption. This includes costs needed for wider spreading of cryptocurrency; integration with various platforms, websites and applications, deployment of ATMs etc.

  • Development and security. This includes costs allocated for funding core and non-core development, security incident response, patch management, running testnets, as well as similar critical technology areas.

  • Support. This category includes user support, documentation, maintaining of web-infrastructure needed for the community and other similar areas.

  • Organization and management. This category includes costs on team coordination and management, legal support, etc.

  • General. This includes projects not covered by the earlier categories, e.g., research on prospective technologies for cryptocurrency application, external security audit, collaboration with other communities, charity and so on. It should be noted that the given list of categories is not final, and treasury deployment in cryptocurrencies will take into account specific of a given solution based on its development effort.”

These suggested categorisations are a great starting point to outline high level groupings of important focus areas to consider. These categorisations should help with the support, maintenance and improvement needed in the ecosystem and for helping with funding solutions being built for the benefit of the ecosystem. The authors make the statement that the marketing category is a good category to “take the biggest percent of the funding budget”. The authors chose not to provide sufficient rationale or evidence for why this statement is well informed. Even if this statement was true, there is also no statement towards whether this would likely change in even a short period of time due to the fast changing environment where priorities in the community will often change as the ecosystem evolves. The authors finish by stating in the general category explanation that this list of categories is not final. This is an important point as it highlights that the authors acknowledge that this list of categories is not a formal recommendation and currently just a suggestion.

“Nevertheless, having such an approach guarantees that critical areas for cryptocurrency routine operation, support and development will always get funding via treasury, which in turn, guarantees cryptocurrency self-sustainability.”

The authors use the word guarantee here but there are instances where this would not be true. Specific focus areas within these categories have no guarantee they will receive funding. For instance in the development and security category there could be instances where all the funding goes to one focus area such as a security incident response. This would mean leaving out other focus areas like core and non-core development or running testnets. If multiple focus areas compete in a single categorisation there would not be a guarantee that funding is spread between every focus area. The outcome from one funding round to the next could still be vastly different in terms of what initiatives receive funding. Areas that are considered critical would not have a guarantee to receive funding unless the categorisation and budget allocated was directly focussed on that single critical area.

The authors then also stated that by guaranteeing funding goes towards these critical areas that it would mean guaranteeing the cryptocurrency is self-sustainable. This would also not be the case as there are many other internal and external factors that influence whether a cryptocurrency will actually be sustainable. Competition alone could be a reason that even a cryptocurrency with a perfect treasury system ends up failing.

Comparison with funding categories

Lack of rationale for categorisation approaches being used

The content covered in the paper doesn’t provide any rationale towards which categorisation approaches are more effective generally nor provide any statement towards which approaches they are using and why. This would have helped the reader understand how well founded the suggestions are for their categorisations and the implications that exist based on how they would be used. In the idea categorisation analysis there are comparisons made between different four different categorisation approaches. The outcome of that analysis led to the suggestion of using categorisations that lean towards being broad, inclusive, recurring and unique.

Similarities with funding categories

The categories suggested in the paper appear to align with the four recommended categorisation approaches covered above. The categorisations do not go into the same depth of outlining the focus areas that should be included but based on some high level interpretation and comparison it appears they are at least fairly broad and also inclusive, recurring and unique.

Some of the categorisations outlined in the paper are similar to ones suggested in funding categories. “Marketing” is similar to community & outreach, “Technology adoption” is similar to products & integrations, “Development and security” is similar to both development & infrastructure and governance & identity. “Support” and “Organisation and management” are covered both in the contributor categories of Catalyst contributors and Cardano contributors and also in the development & infrastructure or governance & identity categories for any idea based proposals. “General” is a suggested category in the paper that is not needed using funding categories as all forms of idea are covered in the suggested idea based categories. Funding categories alternatively suggests a nurturing ideas & teams category to improve experimentation by increasing the number of ideas and teams that can be funded.

No consideration for different incentive structures like a contributor funding model

The paper does not cover different incentive structures such as the suggestion to use a contributor funding model. Many of the potential ideas that would be submitted in the suggested “Support” or “Organization and management” categories from the paper could be covered similarly by using contributor funding model like Catalyst Contributors or Cardano Contributors.

Allowing people to commit extended periods of time and be paid for their contributions to support a complex ecosystem can be an effective way to increase the efficiency of maintaining and operating systems and processes used across the ecosystem. Usage of a contributor funding model could result in replacing or combining some of these categorisations suggested in the paper.


The paper A Treasury System for Cryptocurrencies: Enabling Better Collaborative Intelligence offers a foundational piece of work for the wider crypto ecosystem exploring how treasury systems can be an effective approach to establish a self sustainable ecosystem.

Within this paper an initial potential group of potential categories are outlined which could be used by a treasury system for its own funding process.

The suggested categories appear to adopt the recommended four suggested categorisation approaches outlined in the funding categorisation analysis by leaning towards being broad, inclusive, recurring and unique.

The main areas where this work would benefit from further clarification and work is:

  • Giving more justification towards the categorisation approaches used with any explanations provided for any tradeoffs that exist.

  • Adding more considerations towards the usage of a contributor funding model to help with supporting, maintaining and improving the ecosystem as an alternative incentive model compared to idea based categorisations.

  • Adding considerations towards how to support new ideas and teams to increase experimentation and diversity. Resolving this issue will be important to support new teams with good ideas that struggle to compete against already well known and established teams in the ecosystem.

The main difference with funding categories and the suggested categorisations in this paper are that:

Finally, a response to this paper was also done by the Dash team with some differing opinions. The response paper is called Dash Governance System - Dash Core Team response the report "Dash Governance System: Analysis and Suggestions for Improvement”.

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